City says homeowners should be braced for period of falling prices
· Official figures challenged by analysts
· Warning that market is already in retreat
Larry Elliott and Charlotte Moore
Tuesday September 13, 2005
The Guardian
The City was last night warning homeowners to brace themselves for a period of falling house prices after the latest figures from the government showed the value of property rising at its slowest rate since the year before Tony Blair entered Downing Street.
Analysts cast doubt on data from the Office of the Deputy Prime Minister and two of Britain's biggest mortgage lenders indicating that prices were still rising modestly and said the real picture was of a market already in retreat.
The ODPM said yesterday prices in the year to July rose by 4%, down on 5% in June and considerably lower than the double-digit increases racked up last summer - the point at which the governor of the Bank of England, Mervyn King, stepped in to ***** the property bubble.
House price inflation began to wane almost as soon as Mr King stressed that the market was teetering on the brink of a fall, and the past year has seen the plethora of indicators for the health of the property market all registering marked declines.
According to the ODPM, all regions bar Northern Ireland have seen a sharp decline in house price inflation over the past past year. In London, the south-east and the south-west, annual price inflation has fallen to 1.5% or less.
Ed Stansfield, of Capital Economics, said: "Where house prices in London and particularly in the south-east go, the rest of the regions will tend to follow."
Since February 2002, when the ODPM started measuring house prices on a monthly basis, the north-east has seen the value of an average house rising by 96.8% to £134,034. House price inflation has been the most subdued in London, rising by a mere 36.8% over the same period.
The ODPM, however, presents a more upbeat picture than some competing studies. Hometrack, a property research company, says prices are 3.7% down on a year ago. The variations have prompted debate not just about which set of figures gives the best guide to the trend, but to whether the market is now over the worst.
The ODPM view of the market is in line with the picture painted by the Halifax and the Nationwide - both of which say house price inflation is between 2% and 3%. However, it is at odds with the survey by Hometrack, which says prices are 4% down year on year, and at variance with what estate agents are reporting.
City economists say the difference comes down to the way the various bodies collect and assess the data. The ODPM, the Halifax and the Nationwide base their snapshots on actual transactions, weighting the findings to take account of regional variations and the mix of properties sold.
Hometrack and the Royal Institution of Chartered Surveyors - the body that represents estate agents - conduct a survey of what is happening to all properties on the market, so that they take account both of houses sold and those unsold.
Hardly surprisingly, each organisation believes its method of looking at the market is the best one. Tim Crawford, group economist at the Halifax, said: "The best guide to the housing market is to look at the actual prices of homes sold. Our data gives the best comparison over time."
But Milan Khatri, head of economics at RICS, disagreed: "The transaction-based indices don't reflect which parts of the markets are selling or not."
Capital Economics' Mr Stansfield said: "We believe the transaction-based data may be slower to detect a turning point in prices than the surveys and may be overstating house price inflation. We expect that the divergent signals from the house price data will be resolved by a weakening in the transaction-based indices, rather than a rise in survey-based measures."
George Buckley, an economist at Deutsche Bank, agreed: "The ODPM measure is playing catch up with other surveys. It is only a matter of time before price inflation on this measure is broadly zero." This, the bearish school, believes that an already weak market is getting weaker, and that this will prompt further cuts in interest rates from the Bank of England over the next 12 months.
The economists at Lombard Street Research believe the Nationwide, the Halifax and the ODPM are broadly accurate, and reflect the fact that the Bank has succeeded in finessing a soft landing for the market. Mr King's warning and five increases in interest rates between November 2003 and August 2004 were enough to take the sting out of the market without prompting the sort of crash witnessed in the early 1990s. Lombard Street believes the Bank's decision to cut rates last month was misguided and merely risks re-inflating the bubble.
On one thing, all analysts are agreed: the weakening of the housing market has already had an impact on the wider economy, with consumers less willing to borrow to spend now the feel-good factor of the rising property market has vanished.
Bovis Homes said yesterday its interim profits before tax fell 32%, blaming the fall on lower sales of four- to five-bedroom houses because of weak consumer confidence. Chief executive Malcolm Harris said: "It's cheaper to buy than to rent in most parts of the country. Affordability is not the issue. It is really confidence and the ability of people to sell their homes into the second-hand market."
The next few months will prove crucial. Overall economic growth looks like falling short of Gordon Brown's 3%-3.5% forecast this year, but there have been tentative signs in recent months that the decline in mortgage approvals may have flattened out. In the City there is scepticism about whether this trend would be sustained when - as seems likely - house price inflation on all measures falls to zero over the next few months.
· Official figures challenged by analysts
· Warning that market is already in retreat
Larry Elliott and Charlotte Moore
Tuesday September 13, 2005
The Guardian
The City was last night warning homeowners to brace themselves for a period of falling house prices after the latest figures from the government showed the value of property rising at its slowest rate since the year before Tony Blair entered Downing Street.
Analysts cast doubt on data from the Office of the Deputy Prime Minister and two of Britain's biggest mortgage lenders indicating that prices were still rising modestly and said the real picture was of a market already in retreat.
The ODPM said yesterday prices in the year to July rose by 4%, down on 5% in June and considerably lower than the double-digit increases racked up last summer - the point at which the governor of the Bank of England, Mervyn King, stepped in to ***** the property bubble.
House price inflation began to wane almost as soon as Mr King stressed that the market was teetering on the brink of a fall, and the past year has seen the plethora of indicators for the health of the property market all registering marked declines.
According to the ODPM, all regions bar Northern Ireland have seen a sharp decline in house price inflation over the past past year. In London, the south-east and the south-west, annual price inflation has fallen to 1.5% or less.
Ed Stansfield, of Capital Economics, said: "Where house prices in London and particularly in the south-east go, the rest of the regions will tend to follow."
Since February 2002, when the ODPM started measuring house prices on a monthly basis, the north-east has seen the value of an average house rising by 96.8% to £134,034. House price inflation has been the most subdued in London, rising by a mere 36.8% over the same period.
The ODPM, however, presents a more upbeat picture than some competing studies. Hometrack, a property research company, says prices are 3.7% down on a year ago. The variations have prompted debate not just about which set of figures gives the best guide to the trend, but to whether the market is now over the worst.
The ODPM view of the market is in line with the picture painted by the Halifax and the Nationwide - both of which say house price inflation is between 2% and 3%. However, it is at odds with the survey by Hometrack, which says prices are 4% down year on year, and at variance with what estate agents are reporting.
City economists say the difference comes down to the way the various bodies collect and assess the data. The ODPM, the Halifax and the Nationwide base their snapshots on actual transactions, weighting the findings to take account of regional variations and the mix of properties sold.
Hometrack and the Royal Institution of Chartered Surveyors - the body that represents estate agents - conduct a survey of what is happening to all properties on the market, so that they take account both of houses sold and those unsold.
Hardly surprisingly, each organisation believes its method of looking at the market is the best one. Tim Crawford, group economist at the Halifax, said: "The best guide to the housing market is to look at the actual prices of homes sold. Our data gives the best comparison over time."
But Milan Khatri, head of economics at RICS, disagreed: "The transaction-based indices don't reflect which parts of the markets are selling or not."
Capital Economics' Mr Stansfield said: "We believe the transaction-based data may be slower to detect a turning point in prices than the surveys and may be overstating house price inflation. We expect that the divergent signals from the house price data will be resolved by a weakening in the transaction-based indices, rather than a rise in survey-based measures."
George Buckley, an economist at Deutsche Bank, agreed: "The ODPM measure is playing catch up with other surveys. It is only a matter of time before price inflation on this measure is broadly zero." This, the bearish school, believes that an already weak market is getting weaker, and that this will prompt further cuts in interest rates from the Bank of England over the next 12 months.
The economists at Lombard Street Research believe the Nationwide, the Halifax and the ODPM are broadly accurate, and reflect the fact that the Bank has succeeded in finessing a soft landing for the market. Mr King's warning and five increases in interest rates between November 2003 and August 2004 were enough to take the sting out of the market without prompting the sort of crash witnessed in the early 1990s. Lombard Street believes the Bank's decision to cut rates last month was misguided and merely risks re-inflating the bubble.
On one thing, all analysts are agreed: the weakening of the housing market has already had an impact on the wider economy, with consumers less willing to borrow to spend now the feel-good factor of the rising property market has vanished.
Bovis Homes said yesterday its interim profits before tax fell 32%, blaming the fall on lower sales of four- to five-bedroom houses because of weak consumer confidence. Chief executive Malcolm Harris said: "It's cheaper to buy than to rent in most parts of the country. Affordability is not the issue. It is really confidence and the ability of people to sell their homes into the second-hand market."
The next few months will prove crucial. Overall economic growth looks like falling short of Gordon Brown's 3%-3.5% forecast this year, but there have been tentative signs in recent months that the decline in mortgage approvals may have flattened out. In the City there is scepticism about whether this trend would be sustained when - as seems likely - house price inflation on all measures falls to zero over the next few months.
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